Friday, November 4, 2011

Glossary Of Behavioral Biases

At the Psy-Fi Blog, via Ritholtz.  Here's a sample:

  • Barnum Effect: we see insightful information in random rubbish: see Your Financial Horoscope.


  • Beauty Effect: we attribute qualities to people based on their appearance: see Trust is in the Eye of the Beholder.



  • Benford's Law: in finance numbers starting with 1 are more frequent than those starting 2 and so on: see Forensic Finance, Benford's Way.


  • Bystander Effect: people waiting for others to take the lead when someone else in is trouble: see A Lollapallooza Effect: Capitalism & The Death of Wang Yue.


  • Choice Overload: too much choice makes us indecisive: see Jam Today, Tyranny Tomorrow?


  • Clever Hans Effect: we give off unconscious cues that are unconsciously picked up on: see Market Confidence, Tricks and Placebos.

  • I would say this is one of the more valuable references out there.  Now I know where to go to look for my own blind spots.

    Update: Here is Interloper's take on the list:
    Conspiracy theories are not the only area where the human brain has been empirically proven to make us bad investors. The unchallenged king of sources for detailing them is the Psy-Fi blog. I can virtually guarantee that anyone who has made more than 20 trades in their lives can read Psy-Fi’s list of most common investor mistakes HERE, and recount making at least half of them. Don’t even bother emailing me if you think you haven’t – I’d sooner believe you’ve never had a craving for sugar or sex.  In short, no investors’ education is complete without reading this list or a similarly detailed explication of investor psychology.
    I couldn't agree more.

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